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Full throttle

16 November 2011 By Una Galani

Gulf airlines can afford a little arrogance. Qatar Airways’ outspoken chief executive gave planemaker Airbus a blunt lecture on strategy at the region’s air show, telling the European group to “go back to basics” before changing tack and placing a $6 billion order for at least 80 new planes – hot on the heels of a mega $18 billion order for Boeing from Dubai-owned rival Emirates. The cash-and-swagger confidence may seem like hubris. But it underscores how Gulf carriers are gaining altitude over the industry.

There are two big advantages Gulf airlines have over rivals. Advancement in aircraft technology mean many long-haul flights now require just one stop, and the Gulf is perfectly located between the East and West. A third of the world’s population are within a four-hour flight. What’s more, everything is new. Airports and aeroplanes are more efficient. As for the trade unions, known for hampering the aims of Australia’s Qantas and British Airways to manage costs, well, they don’t exist.

Global airline industry net profit will shrink 40 percent next year to $4.9 billion, or less than a third of 2010 levels, according to the International Air Transport Association. But three Gulf carriers are more than coping. Dubai-owned Emirates, the world’s largest airline by passenger numbers, accounted for roughly 20 percent of the industry’s profits last year. Eight-year old Etihad reckons it will break even this year. And Qatar Airways has made a net profit for the last two years with 30 percent year-on-year route expansion.

A weak global economy is expected to at least halve Middle East growth in passenger traffic from 20 percent last year. But it makes sense for Gulf carriers to continue full throttle with plane orders if they can remain profitable in a downturn. The region’s airlines are forecast to have 2.9 percent EBIT margins next year, more than three times that of European airlines, according to IATA. And there are still many routes under-served or not handled at all by Gulf carriers, according to the Centre for Asia Pacific Aviation.

That explains why the Middle East is expected to account for around 11 percent of global commercial airplane orders between now and 2030. Airbus and Boeing may have to get used to the lectures.

 

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